A per-unit tax is a fixed dollar amount charged on every unit of a good sold, which shifts the supply (or marginal cost) curve up by the tax amount, raising the price consumers pay, lowering the net price firms receive, and reducing equilibrium quantity (AP Micro Topic 6.4, EK POL-4.A.1).
A per-unit tax (also called an excise or unit tax) is a fixed amount the government collects on each unit of a good or service sold, like $2 on every pack of cigarettes. Because the tax is charged per unit, it raises the firm's marginal cost of producing each additional unit. On a graph, that means the supply curve (or MC curve for a monopoly) shifts vertically upward by exactly the size of the tax.
The AP CED (EK POL-4.A.1) spells out everything a per-unit tax touches. It raises the total price consumers pay, lowers the net price firms keep after handing the tax to the government, shrinks equilibrium quantity, cuts both consumer and producer surplus, creates deadweight loss (in an otherwise efficient market), and generates government revenue equal to the tax times the new quantity. Who eats more of the tax depends on the price elasticities of demand and supply, which is the tax incidence question. One twist worth memorizing now: if the market has a negative externality, a per-unit tax can actually fix inefficiency instead of causing it, by pushing output toward the socially optimal quantity.
Per-unit taxes live in Unit 6 (Market Failure and the Role of Government) and hit two topics at once. In Topic 6.4, learning objectives 6.4.A, 6.4.B, and 6.4.C ask you to define the policy, graph its effects in perfectly competitive AND imperfectly competitive markets, and calculate the resulting changes in price, quantity, surplus, deadweight loss, and government revenue. In Topic 6.2, learning objective 6.2.B uses the per-unit tax as the classic remedy for a negative externality (EK POL-3.B.1). A tax equal to the marginal external cost internalizes the externality and moves the market from the private equilibrium to the socially optimal quantity where MSB = MSC. This double identity, sometimes the villain that creates deadweight loss and sometimes the hero that eliminates it, is exactly the kind of context-dependent reasoning the exam loves to test.
Keep studying AP Microeconomics Unit 6
Lump-Sum Tax (Unit 6)
This is the contrast the exam tests constantly. A per-unit tax changes marginal cost, so the firm's profit-maximizing quantity changes. A lump-sum tax only changes fixed cost (EK POL-4.A.2), so MC and the MR = MC quantity stay exactly where they were. Per-unit tax moves the graph; lump-sum tax just shrinks profit.
Tax Incidence (Units 2 & 6)
A per-unit tax drives a wedge between what buyers pay and what sellers keep, and elasticity decides who absorbs more of it. The side of the market that's less elastic (less able to walk away) bears the bigger burden. This is Unit 2 elasticity logic doing the heavy lifting inside a Unit 6 policy question.
Negative Externalities (Unit 6)
When production creates external costs, the market overproduces because firms respond to private costs, not social costs (EK POL-3.A.3). A per-unit tax equal to the marginal external cost shifts MPC up to MSC, so the market lands at the socially optimal quantity. Here the tax removes deadweight loss instead of creating it.
Deadweight Loss (Unit 6)
In an efficient, perfectly competitive market with no externality, a per-unit tax shrinks quantity below the efficient level, and the triangle of lost surplus between the old and new quantities is deadweight loss. Whether a tax creates or destroys DWL depends entirely on whether the market started out efficient.
Per-unit taxes show up in both MCQs and FRQs, and the exam expects you to graph and calculate, not just define. Released FRQs use it across market structures. The 2017 FRQ Q3 gave a monopoly with MSC and MPC curves and asked about a tax addressing the externality, the 2022 and 2023 FRQs both featured patent monopolies where a per-unit tax shifts MC up and changes the profit-maximizing output, and the 2024 FRQ Q2 set it in a perfectly competitive market. Practice questions hit the same angles, like how a per-unit tax on a good with a negative externality affects consumer and producer surplus, how a unit tax changes outcomes in monopolistic competition, and what happens to deadweight loss when a monopoly with a negative externality gets taxed. Be ready to shift S or MC up by the tax amount, identify the new price and quantity, shade or calculate consumer surplus, producer surplus, government revenue (tax × new Q), and deadweight loss, and explain whether the tax improves or worsens efficiency given the market structure and any externality.
A per-unit tax is charged on every unit sold, so it raises marginal cost and shifts the supply or MC curve up, changing price and quantity. A lump-sum tax is one flat payment no matter how much the firm produces, so it only raises fixed cost. Since MR = MC doesn't involve fixed costs, a lump-sum tax leaves price and quantity unchanged in the short run and only reduces profit. Quick test on the exam: if the tax depends on quantity, the graph moves; if it's a flat fee, the graph stays put.
A per-unit tax shifts the supply curve (or MC curve) vertically upward by exactly the amount of the tax, because each unit now costs that much more to sell.
Per the CED (EK POL-4.A.1), a per-unit tax raises the price consumers pay, lowers the net price firms receive, reduces equilibrium quantity, shrinks consumer and producer surplus, and generates government revenue equal to the tax times the new quantity.
Tax incidence depends on elasticity, so the more inelastic side of the market (buyers or sellers) bears the larger share of the tax burden.
In an efficient market a per-unit tax creates deadweight loss, but in a market with a negative externality a per-unit tax equal to the marginal external cost can eliminate deadweight loss by moving output to where MSB = MSC.
Unlike a per-unit tax, a lump-sum tax does not change marginal cost or marginal benefit, so it never changes the profit-maximizing quantity, only the firm's profit.
The exam tests per-unit taxes in every market structure, so practice shifting MC up by the tax in monopoly and monopolistic competition graphs, not just in perfect competition.
It's a fixed tax charged on each unit of a good sold, like $3 per unit. It shifts supply (or MC) up by the tax amount, raising the consumer price, lowering the price firms keep, and reducing quantity. It's tested in Topics 6.4 and 6.2 of AP Micro.
No. In an otherwise efficient market it does, but when there's a negative externality, a per-unit tax equal to the marginal external cost actually eliminates deadweight loss by cutting output back to the socially optimal quantity where MSB = MSC. The 2017 FRQ Q3 tested exactly this setup with a monopoly.
A per-unit tax depends on how many units you sell, so it raises marginal cost and changes the firm's profit-maximizing price and quantity. A lump-sum tax is one flat payment that only raises fixed cost, so quantity and price don't change in the short run, just profit.
Both, usually, and elasticity decides the split. If demand is more inelastic than supply, consumers bear more of the burden; if supply is more inelastic, producers do. It doesn't matter who legally sends the check to the government.
Multiply the per-unit tax by the quantity sold after the tax, not the original quantity. On a graph, it's the rectangle between the price consumers pay and the net price sellers receive, stretching out to the new equilibrium quantity. FRQs often ask you to calculate or shade this area.